Policy Papers

Rationing returns: a solution to global warming?

Mark Roodhouse | 01 March 2007

Executive Summary

Politicians from all parties acknowledge the need to reduce consumption of energy from fossil fuels if carbon emissions are to be cut.

There are two policy instruments available to politicians: carbon taxes and carbon rationing.

Carbon taxes are currently the frontrunner, although doubts have been expressed about their efficacy and equity.

Advocates of carbon rationing can strengthen their case by revisiting the history of rationing during the 1940s and 1950s.

In 1939 and 1940 the government rejected proposals to rely upon increased taxation to cut consumption because the impact of tax rises would be slow and inequitable.

The government introduced rationing instead, as it was the best way to cut consumption quickly and ensure that reduced supplies were shared out equitably.

Policymakers rejected tradable rations, a feature of current carbon rationing proposals, fearing that it would undermine the moral basis of rationing, encourage coupon fraud and feed inflation, thereby negating the socially-progressive aspects of tradable rations.

The public accepted that rationing was a temporary but necessary measure due to persuasive economic arguments, underlying trust in central government, and positive memories of rationing during the First World War.

To introduce a successful carbon rationing scheme, the experience of the Second World War indicates that the government must convince the public that rationing levels are fair; that the system is administered transparently and fairly; and that evaders are few in number, likely to be detected and liable to stiff penalties if found guilty.

Introduction

Over the past decade a political consensus has emerged that climate change is a problem and that the UK needs to reduce carbon dioxide (CO2) emissions dramatically to tackle it. The three steps necessary to cut carbon emissions are well known: reducing energy consumption, increasing energy efficiency and shifting from non-renewable to renewable sources of energy. Reducing energy consumption is the most politically unpalatable of these steps as it would mean changing the way we live. Unsurprisingly, the green policies of the main political parties have focused on promoting energy efficiency and renewable energy. Using new and existing technologies, they hope to improve energy efficiency, increase the amount of energy generated from renewable sources and reduce or capture the CO2 emitted when non-renewable energy is used. Until 2006 there was little public debate about how to halt, and even reverse, growth in energy demand. Now the Labour, Conservative and Liberal Democrat parties are debating green taxes, particularly a carbon tax on fossil fuels, to reduce carbon emissions. The Green Party and independent experts in environmental policy have proposed carbon rationing as an alternative to a carbon tax. Giving the Audit Commission annual lecture, the Environment Secretary, David Miliband, also floated the idea of carbon rationing.

The idea of carbon rationing is not new. The environmentalist Mayer Hillman first put forward the idea in 1991 while head of the Policy Studies Institute's environmental group. Although several variations have been proposed over the past fifteen years, Mayer Hillman's proposal for personal carbon rationing and the economist David Fleming's proposal for domestic tradable quotas (DTQs), or tradable energy quotas (TEQs), are the most well known. If carbon rationing were to be introduced, individuals would receive an equal ration of carbon points which they could spend within a limited rationing period (normally a year) on motor fuel, gas and electricity for personal transport and household energy. Every unit of motor fuel, gas and electricity would have a points value, and consumers would pay for each unit in cash and points. The government would determine the points value of units of motor fuel and household fuel, giving them the opportunity to alter points values in order to reduce consumption year on year. The advocates of carbon rationing argue that such a scheme is the only way to reduce carbon emissions quickly enough to prevent the amount of atmospheric CO2 exceeding 400 parts per million, which they argue is the level at which catastrophic climate change would become unstoppable.

The main political parties will have to take carbon rationing more seriously as public perception of the gravity of the problem of climate change increases. The Fourth Assessment Report of the Intergovernmental Panel on Climate Change, due to be published in November 2007, is likely to suggest that the level of CO2 in the atmosphere is higher and has increased faster than was expected. To prevent the tipping point being reached, growing demand for energy will need to be halted and reversed. Emissions trading and government information campaigns, coupled with policies to increase energy efficiency and change the energy mix, may not be enough. Another policy instrument to reduce energy consumption will be necessary. At the moment green taxes are the frontrunner, but doubts about their equity and efficacy are being raised. In a recent report evaluating the impact of green taxes on low income groups, Paul Ekins and Simon Dresner of the Policy Studies Institute's environmental group concluded that flat-rate green taxes would be socially regressive, hitting the poorest the hardest. Differentiated green taxes would not be socially regressive, but they would be more costly to implement. Carbon rationing could yet become the policy instrument of choice.

For economic historians the debate about the best way to reduce energy consumption echoes the debates about rationing during the First and Second World Wars. In How We Can Save the Planet Hillman uses the example of food rationing schemes in mid-twentieth-century Britain to argue that rationing can improve equality and receive popular support. The section discussing food rationing is entitled 'Learning from experience', but the lessons Hillman draws are superficial. Previous experiences of rationing can provide more than inspiration for advocates of carbon rationing and a useful historical precedent to cite in public debate. Although the reasons for consumer rationing during the 1940s and 1950s differ greatly from the reasons for contemporary carbon rationing, the aim of these schemes was the same: the reduction of consumption and the equitable distribution of the remaining consumer goods and services. Just as today, economists and politicians debated whether rationing was really necessary and if taxation and other measures could achieve the same end more efficiently and effectively. Revisiting this debate may help advocates and opponents of carbon rationing sharpen their arguments and speed up an important debate.

Taxation versus rationing

Unlike today, rationing was the commonsense solution to the problem of reducing consumption during the 1940s and 1950s. Within three weeks of declaring war on Germany, Neville Chamberlain's National Government introduced petrol rationing. Grumbling in the motoring press apart, there was no opposition to the policy. There was also very little public outcry when food rationing started in January 1940 and the same was true of clothes rationing in June 1941. The civilian experience of life on the Home Front during the First World War ensured that the public expected the National Government to ration basic consumer goods within months of war being declared. Consumers remembered how wartime shortages had led to dramatic increases in the price of food and fuel which had borne down hardest on the lower income groups. The introduction of petrol rationing in 1916 and food rationing in 1917 had improved the situation dramatically and convinced the public that state regulation of distribution could work.

Policymakers agreed with the public on the need for price control and rationing. During the 1930s military planners and their civilian counterparts prepared control schemes for swift introduction in case of an emergency. They assumed that fixing the price of basic goods and rationing them would prevent social unrest and bolster public morale as it had done during the First World War. Economists argued about the extent of price control and rationing but even John Maynard Keynes, who wanted to curb wartime inflation through fiscal policy, acknowledged the need for an 'iron ration' covering necessaries to ensure that every consumer received an adequate amount of rationed basics. Keynesians and non-Keynesians alike could agree that the purpose of a well-conceived rationing scheme 'is not to control aggregate consumption but to divert consumption in as fair a way as possible from an article, the supply of which has to be restricted for special reasons'.

Shipping space was the single most important of these 'special reasons'. As an industrialised island economy, the UK depended upon imports. The anticipated German naval blockade would reduce the volume of imports through sinkings and disruption just as the British needed to increase imports for war production and military operations. The pressure on shipping space meant civilian consumption of imports would have to be restricted if the war effort was not to be hindered. Cutting back on imports of non-essential civilian goods would not free up enough shipping space so imports of semi-essential and essential civilian goods had to be cut, too. While policymakers were willing to countenance big increases in the price of non-essential goods, they did not want the price of semi-essential and essential goods to increase dramatically. If this happened lower-income groups would be unable to purchase adequate quantities of basic goods. All income groups would see their standard of living fall as the cost of living increased, but the lower-income groups, on whom the government depended for manpower, would be hardest hit. As experience in the First World War had already shown, this would be a recipe for social unrest and low morale that could prove disastrous for the war effort. Tax rises and forced savings might mop up some of the excess purchasing power and damp down inflation, while welfare benefits could help those on low incomes to pay higher prices. But they could not ensure that everyone received an adequate supply of basic goods at a price they could afford to pay. Nor could they reduce civilian consumption of strategic commodities quickly and effectively. Rationing could do all of these things.

The case for petrol rationing illustrates the unanswerable nature of the case for control in the right circumstances. Prior to the Second World War the UK depended upon petrol imported from the Middle East. The armed services expected their demand for petrol to increase dramatically. Even in the planners' best scenario, increasing imports would not keep pace with demand due to limitations on shipping space. In the worst case scenario, imports would fall as military demands rose. Civilian consumption would have to be restricted if military operations were not to be compromised. Limiting civilian supplies and letting the price of petrol rise was not a viable policy as essential economic activity might be threatened. Adequate petrol supplies at an affordable price had to reach essential and semi-essential users. The government opted to ration commercial and private users, rejecting suggestions that they leave petrol 'free' and increase the cost of motoring instead. Increasing the cost of driving and vehicle licences was too crude a policy instrument for official purposes as all drivers bought these licences regardless of their contribution to the war effort. Moreover, increasing licence fees would have taken too long to change behaviour as drivers bought their licences annually. Another suggestion put forward by those opposed to rationing was to increase petrol tax. Although increasing petrol tax and motoring taxes would make motoring more expensive and perhaps lead to a reduction in private motoring, commercial users would pass the increased costs onto consumers with inflationary consequences. Increases in petrol tax and driving-licence fees would also be socially regressive, impacting hardest on motorists and bikers from the upper-working and lower-middle classes who ran motorbikes and second-hand cars. Rationing was the only way to affect swift and dramatic cuts in civilian consumption that would not feed inflation, hit essential and semi-essential users of petrol or exacerbate social tensions.

Specific versus group rationing

Having convinced themselves of the need for rationing in time of war, policymakers and administrators had to decide on the type of scheme to be introduced. In the 1940s economists distinguished between three types of rationing scheme: specific, group and general. Specific rationing covered a single commodity, group rationing covered related commodities, and general rationing covered total expenditure over a wide field. The British government did not introduce a general rationing scheme, although there was considerable public interest in a plan for such a scheme drawn up by the economist Michal Kalecki. Instead in 1939 separate, specific rations were synonymous with rationing in the minds of the public and policymakers. There had been no group rations during the First World War and specific rationing of food and petrol had been popular and successful. When preparing plans for food and petrol rationing in the run up to the Second World War, civil servants revised the schemes that had proved a success during the last war.

Under the 'specific' rationing schemes each consumer received the same amount of a rationed good as their neighbour with the exception of a small number of groups who received supplementary rations. As some people could not afford to buy their entire ration or did not want their entire ration, there was always a surplus of coupons and rationed goods. Equally, there were always some people who wanted to consume more of a particular rationed good and had the money to pay for additional rationed goods. However, the rationing regulations did not permit consumers to exchange unwanted coupons or rationed goods. The result of this approach was mounting frustration with the inefficiencies of the rationing system and growing anger amongst some consumers at the inadequacy of ration levels.

The introduction of clothes rationing in June 1941 signalled a change in approach to rationing. The government issued consumers with a fixed number of points which were valid for a year and could be spent on articles of clothing and footwear. Each article had a points value determined by the government. When purchasing an item from this group, consumers had to pay retailers for the item in cash and points. In effect points were a parallel currency that allowed consumers to make some choices while the government controlled total consumption of the group of goods and influenced the consumption of items within the group.

To maintain control over civilian consumption, retailers had to hand over the points they collected from their customers when they purchased supplies from wholesalers who in their turn had to hand over points to manufacturers. To facilitate the passing back of points, economist Brian Reddaway devised a system of coupon-banking. Retailers, wholesalers and manufacturers opened a coupon account at their bank. Retailers paid points into their coupon account. The bank would issue coupon cheques to pay wholesalers who could also use coupon cheques to pay their suppliers.

Should rationing have to be reintroduced in the future, Reddaway thought policymakers and administrators should first consider points rationing. To his mind such schemes were the best way to balance consumer choice with government control. But there would still be a need for specific rationing of some commodities. As Reddaway put it in his essay on rationing:

We may prefer to dine à la carte on the points system when we are genuinely free to select from the whole list, but the certainty of reasonable table d'hôte meals on specific rations may be preferable to a 'free choice' from a menu on which all the meat dishes may be 'off' simultaneously.

Specific rationing would always be the best option for essential foodstuffs and strategically important commodities such as petrol, as ration levels could be adjusted according to the supply situation so that every consumer received a share of available supplies. Specific rationing of staple commodities might be avoidable if supplies could be guaranteed for the duration of the rationing period. No dishes would be 'off' the menu if this were the case. If the government had been able to guarantee supplies of petrol and coal, then a points rationing scheme would have been possible.

Inconvertible versus convertible rationing

Tradable rations were not a feature of the rationing schemes operating during the 1940s and 1950s. It was illegal to give coupons as gifts, barter them or sell them. This did not prevent the emergence of black markets in unwanted coupons and rations. Of these, the black market in clothing coupons was the largest. Working-class women with large families sold spare coupons to fellow factory workers, middle-class housewives who they cleaned for and occasionally 'spivs' such as the jazz trumpeter John Basnett interviewed for the BBC TV series Now The War Is Over:

I found a way that I could buy clothing coupons, probably from people who used to like a drink, they probably had families, in particular women who used to go for a drink at lunchtimes in the pub. You'd get talking to them and ask if they had any clothing coupons to sell and a lot of them had. I used to buy them off these women for sixpence or a shilling each and I had a contact in some of the better class districts and I used to sell them to people for three shillings and three and six. That lasted quite a while, twelve to eighteen months, and I made a good living out of that.

Thus prohibiting the free exchange of coupons created an unnecessary black market that brought previously law abiding citizens into conflict with the law for no apparent gain.

So why did the authorities opt for inconvertible rationing? Michal Kalecki, for instance, in 1941 suggested a compromise between convertible rationing and inconvertible rationing proposing that the government offer to buy back unused coupons at a price equivalent to the value of goods that the consumer could purchase with the coupons. He argued this would benefit consumers on low incomes without facilitating a black market because the poor could sell coupons without criminalising themselves for a reasonable fixed price. Despite the apparent strength of the case for tradable rations and the impossibility of preventing a black market trade in coupons, policymakers rejected the idea of free or controlled exchange of unwanted coupons. This was because officials feared that tradable rations threatened to undermine the moral basis of rationing: equality of sacrifice.

By 1947, however, officials were willing to consider the proposal of Hugh Weeks, Deputy Director of the Treasury's Central Economic Planning Staff, for a tradable ration of dollar goods. He suggested that the government replace specific rationing of petrol with a points rationing scheme for dollar imports such as tobacco, sweets and films as well as petrol. The dollar rationing plan envisaged a legal trade in unwanted dollar units. Post Offices would act as exchange bureaux, buying and selling coupons at a rate fixed by the government. Senior civil servants in the Treasury liked the coupon trading element of the scheme because of its redistributive effect. Richard ('Otto') Clarke, Under-Secretary in the Treasury's Overseas Finance Division, explained: 'The general equity of this is that if you are vicious you pay through the nose for the privilege; if, on the other hand, you are poor but virtuous, you collect quite a lot of money accordingly'. He expressed one reservation: coupon trading could be inflationary.

It was fierce resistance from officials in the rationing departments which ensured that the Weeks Plan was never implemented. The administrators argued that it would be impossible to introduce the scheme quickly and efficiently. An entirely new bureaucracy would be needed that encompassed all the rationing departments. The scheme would also confuse the public as its purpose differed from existing schemes. They opposed the element of coupon trading too, arguing that it would encourage coupon forgery and might lead people to trade illicitly in coupons other than dollar units.

Winning over the public

Although tradable rations would have reduced black market consumption, it is important to note that black markets never realised their full potential. There was always a significant surplus of coupons in circulation which would not have been the case if there had been a fully-developed black market. Many consumers possessing the means and the motives to evade rationing regulations did not do so when they had the opportunity. Historians have often attributed the high levels of compliance to patriotism and popular respect for the law. However, patriotism does not explain why support for rationing remained high once the war ended, and respect for the law is too vague to be an entirely convincing explanation.

Politicians and officials had their own views as to what made rationing a success. Reflecting upon three years as Minister of Food, Lord Woolton believed that 'the success of any rationing scheme depends, in the long run, on two things; the first is its justice and impartiality, and secondly - and perhaps the more important factor - on the general public acceptance of the correctness of its purpose and the fairness of its administration'. Woolton and other ministers took great pains to convince the public that rationing was necessary and temporary, explaining the economic case and invoking popular memory of the success of rationing during the previous war.

Large sections of the public may not have understood the economic arguments for rationing, but trusted the government's judgment enough to give rationing their support. Public support was always provisional. Ration levels had to accord with individuals' understanding of what constituted a fair share. Rations had to be honoured: everyone should be able to obtain their full ration when they wanted it. The system had to be fairly administered too. No individual or group should be allowed to flout the regulations. Evaders of the regulations should be punished swiftly and proportionately. Officials took public perception of these things seriously, stressing the fairness of rationing arrangements and launching high-profile drives against particular types of evasion. The rhetoric of fair shares in these publicity campaigns had an unexpectedly positive consequence, placing limits on the evasion of rationing. Individuals found it difficult to reject the principle of 'fair shares for all' which meant that evaders had to justify additional black market consumption in terms of what they felt they were entitled to.

Conclusions

The advocates of carbon rationing, and their opponents, can draw upon the history of rationing during the 1940s and 1950s to inform current policy debates. Planners understood that rationing was the most effective way to cut civilian consumption swiftly whilst ensuring that essential economic activity continued. Taxation is an option when time is not an issue and differentiated taxes can preserve the principle of equality of sacrifice. Should a future government want to reduce carbon emissions quickly and dramatically, the case for carbon rationing would be unanswerable.

If rationing is to be introduced, points rationing is the economist's preferred option as it allows greater consumer choice. Whether or not future points rationing schemes should incorporate tradable rations is a more complex issue. It is argued that tradable rations would maximise individual utility and have a socially-progressive effect. Yet tradable rations could undermine the moral basis of rationing by bringing the principle of equality of sacrifice into question. In the absence of price control, a trade in coupons might also be inflationary.

Persuading the public of the need for carbon rationing is probably the biggest hurdle policymakers will have to face. To replicate the successes of rationing in the 1940s and 1950s, advocates of carbon rationing will have to persuade the public that the case for carbon rationing is unanswerable. The government cannot hope to enforce such a scheme without widespread public support. To build and retain this support opinion formers will need to convince the public that:

the risk of catastrophic climate change is serious and increasing in severity;

such climate change poses a grave threat to British society and will have a direct and dramatic impact on their way of life if unchecked;

catastrophic climate change can be prevented if the government takes immediate action, implementing a strategy to reduce carbon emissions;

a carbon rationing scheme is central to this strategy and without it the strategy will fail;

the scheme is a temporary measure during the transition from a high-carbon economy to a low-carbon economy and will be removed when the unit price and/or consumption levels drop below a certain level;

ration levels are fair, i.e. in accordance with popular notions of distributive justice and not those of political philosophers;

the system is administered transparently and fairly; and,

evaders are few in number, likely to be detected and liable to stiff penalties if found guilty.

Further Reading

Paul Addison, Now the War is Over (London, Jonathan Cape, 1985).

Alan Booth, 'Economists and Points Rationing in the Second World War', Journal of European Economic History, 14 (1985), 297-317.

Mark Roodhouse, 'Popular Morality and the Black Market in Britain, 1939-55', in Frank Trentmann and Flemming Just (eds.), Food and Conflict in Europe in the Age of the Two World Wars (Basingstoke, Palgrave Macmillan, 2006), pp. 243-65.

About the author

Mark Roodhouse lectures in twentieth-century British history at the University of York, where he is working on his first book Black Market Morality examining evasion of consumer rationing and price control schemes during the 1940s and early 1950s. The book is based on his doctoral thesis which won the University of Cambridge's Ellen McArthur Prize in Economic History for 2003. mr19@york.ac.uk.

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